Category Archives: Small Business

Myth of the Mission Statement

Mission Statement

 

Mission Statements… you just gotta have one—right?

Well, if you listen to the strategic planners, experts, and pundits, you will surely believe that without a mission statement your company is doomed.

But, before you get too excited over mission statements, try answering the following questions for either the company you own, or the one you currently work for:

  • Does your company have a mission statement?
  • Do you know, generally, what the major points are—without looking them up?
  • Are all employees well acquainted with your company’s mission statement?
  • Is your mission statement ever referred to, or is it hidden away in some manual?
  • Most important—does your company culture reflect its mission statement?

Here’s the problem as I see it: I have been a CEO or business consultant over many decades and I have seen a lot of mission statements—a few of them even very well written.

But, rarely have I seen a company that had successfully built its culture around its mission statement.

Typically, mission statements are created, and then abandoned. They quickly become obsolete—much like business plans.

Most mission statements are composed of such tired clichés and meaningless words that they are useless almost before the ink dries.

Paragraphs of worn out platitudes will do nothing to either set, or alter, the culture of your company.

What The Experts Say

I recently viewed a website on strategic planning that said a mission statement had to address 9 major components: customers, products, markets, technology, survival, philosophy, self-concept, public image, and employees.

That website went on to say that strategic practitioners and academics all agreed that a mission statement must be comprehensive and include all 9 major components… and that the document could be up to 250 words.

I randomly looked up a couple of these bloated mission statements and it’s hard to believe that anyone would call that meaningless drivel a “mission statement.”

On The Other Hand…

Companies—especially startups—constantly miss a golden opportunity to set a solid foundation for the development of their company culture when they don’t create a meaningful mission statement.

A great mission statement could be the foundation for both the culture of a company and the building of its brand.

Unfortunately, many companies get so enamored with the actual physical creation of a mission statement document they overlook the importance it could play in building the culture they want.

Too many companies end up with a manifesto instead of a mission statement.

I believe a useful mission statement should be short—maybe about 10 words or so… or less. I don’t care if you call it a motto, a goal, a vision statement, or a mission statement—it needs to be read and understood by everyone, and become an integral part of your company’s culture.

A bloated mission statement that few people understand will do more harm than good.

Here are some actual mission statement samples of what I mean about keeping it short and also serve as the foundation for your company culture:

Becton, Dickinson, and company

Mission: “To help all people live healthy lives.”

(As an employee, I could fully understand what this company’s mission is, and why I should do the best job I can to support their culture.)

CVS Pharmacy

Mission: “We will be the easiest pharmacy retailer for customers to use.”

(As an employee, these words should be my mantra as I do my job. As a customer, it gives me a confident feeling… if the culture manifests the mission.)

The Hershey Company

Mission: “Undisputed Marketplace Leadership.”

(That should be pretty clear to every one—no platitudes or b.s. here—this is something to build a culture around.)

If you’re going to have a mission statement, you need to create one that every employee and every customer can relate to.

Everything an employee does should be in support of your mission statement, because it should be the foundation that supports your culture.

Also, the customer should have every experience be a reflection of your mission statement and be reassured every time they see your mission statement… and they should see it.

So, here’s my parting shot: Try hard to come up with a short, meaningful statement that represents the essence of your company… then build your entire culture around that foundation statement.

If you can’t easily do that… forget a mission statement altogether… it will only look silly (as most of them do) and detract from the culture you hope to build.

Do you have any comments out there about mission statements?… I’d like to hear them.

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The American Dream–Can it Survive?

Business Survival Coverlg - 2015

 

“U.S. Business Data Worst in World—and Getting Worse.”

—Jerry Useem, Editor, Inc magazine – 1996

This was the title of an article written by Jerry Useem 19 years ago!—and the situation did indeed get worse.

Government agencies put most of their business statistical energies into only 17% of all businesses in the U.S. and come up with information that is generally a couple of years old—or older.

The business community is even worse, because they can’t even decide what the definition of a business is, let alone what’s happening to them.

It seems that very few people even care what happens to small businesses as long as new ones are always coming along to replace those that die… hopefully quietly and alone.

That’s why I created a report—Business Survival Reality: The Mystery of Business Births and Deaths in the U.S.—that I update annually.

In this report I try to make some sort of sense out of the lack of information, and the misinformation, published by government agencies, business pundits, and guru economists.

Usually, I release this report in early June, but this year I circulated it among some of my colleagues, and others, to preview and make comments before I released it to the public.

Generally, the response was one of disbelief—no way could the numbers be that high. They didn’t question my approach, just the magnitude of the problem.

If this report holds up under additional scrutiny, it would indicate that Donald Trump was right in one of his speeches when he said the “American Dream is dead.”

If you take the time to download a copy of the report and read it, you will likely be skeptical of the numbers as well—and I welcome any suggestions you might have as to a better approach than the one I took.

On the other hand, if the numbers in this report are anywhere near realistic, our country is throwing away a terrific opportunity to rebuild itself into the great nation it once was— where the “American Dream” was real… and attainable.

Or, we in the business community, in addition to the government, can continue to put our heads in the sand and let our national treasure of entrepreneurs continue to “twist in the wind.”

Download a pdf copy of the report here and then tell me what you think!

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The Mystery of Business Births and Deaths–2014

Business births and deaths in the U.S. have always been a mystery—for a couple of reasons:

  1. The government and academia only try to track about 22% of all businesses—those with the greatest potential for a high growth rate—and what little information they do produce is several years in arrears.
  2. The remaining 78% of all U.S. businesses are generally ignored—considered not to exist—not only by the government and academia, but also by the business pundits and “experts” within the business community itself.

As a result, there is little to no information about the lives of 78% of all businesses in the U.S.—and information on the other 22% is years late, often contradictory, and highly suspect.

Since, apparently, no one else in the U.S. cares much about whether our small businesses live or die, I thought I would research the mystery of small business births and deaths myself.

The results of this endeavor are presented in a report I created titled Business Survival Reality: The Mystery of Business Births and Deaths in the U.S.

 

business-survival-smcover-2014

 

You can download a free pdf copy of this report here (no opt-in), or for more information about this report, click here.

 

 

This report looks at the following issues:

  • Why this information is important
  • The definition of a business
  • A total business census in the U.S.
  • Annual business growth (including all businesses)
  • Business Births by year
  • Business Deaths by year
  • Conclusions and Final Thoughts about the entire mystery

My primary intent in writing this report is to try and generate a dialogue about the 78% of all businesses in the U.S. that no one seems to care about.

There is a dearth of information being directed specifically at this important segment of our business community. Also, any kind of assistance offered by either government or private entities is almost nonexistent.

This large group of small businesses is composed of the businesses in the U.S. that need the most help—and receive none.

We in the business community need to do more to help these millions of small businesses that try to start a business every year, and more often than not—fail.

Take a look at this small report—you can download it free here with no opt-in—and let me know what you think about the information presented in it.

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Sales Don’t Pay the Bills

I wasn’t going to write about cash flow again for a while, but I recently received an email taking me to task for saying in a prior article that “Sales do not pay bills—cash does.” The writer’s point being, that if you don’t have any sales, you won’t have any cash.

And, of course, that’s true—up to a point. Continue reading Sales Don’t Pay the Bills

The Secret to Improving Your Cash Flow

Yes, there is a secret to controlling your cash flow. It should be obvious to all—but it is almost universally ignored. Here it is….

If you find yourself in a hole, stop digging.   —Will Rogers

The companion to this profound statement is….

Sales do not pay bills—cash does.   —”Common sense”

 O.K… actually there is nothing secret, magical, or mystical about these two statements… other than the fact they are ignored by almost all business people—most of whom eventually find themselves in a cash flow bind.

Some of you may ask, “How do these statements affect me?” That’s easy to answer: If you can’t pay your bills, you had better study these statements very carefully.

But, if your business is profitable, and you’re rolling in cash, ignore this entire article and move on your merry way—at least until you find yourself in the proverbial “hole.”

All right, how do I get out of this “hole” once I admit I am in it?

If your business is having trouble paying its bills, I would start by immediately instituting the following steps:

  1. Determine just how bad your cash flow problem is—how deep is the hole? You can do this by calculating and analyzing your business’s “vital signs.” The article posted just prior to this one—Profitable—And Failing—explains how you do that. This step is not optional!
  2. Stop digging! If an upcoming expense doesn’t immediately generate cash—postpone it. No exceptions! Remember, sales do not pay bills—cash does.
  3. Create a daily cash flow model that goes out several months, and then expand it into a weekly model that goes out 12-18 months into the future. This model should have detailed payables forecasting capability, and should be updated regularly. This is especially important to businesses that are affected by seasonality.
  4. Know well in advance when each penny received will be spent—and on what. Typical Cash Flow Statements are fine, but they are historical. You need to plan your future cash flow.
  5. Defer any expense that either does not generate immediate cash, or keeps the doors open. (I know I am repeating myself here, but this is the most important step you can take when you can’t pay the bills you already have.)
  6. Defer adding any kind of fixed asset.
  7. Negotiate special payment terms with vendors wherever possible.
  8. A common recommendation is to string our your payables and live off vendor credit to conserve cash, but, if you are in serious cash flow trouble, you have likely done this by default already.
  9. Liquidate obsolete or unusable inventory.
  10. Set up scheduled payments for larger vendor accounts.
  11.  If you have a bank loan, and you are affected by seasonal business, negotiate skipping payments during the off-season.
  12.  Sell assets you are not currently using.
  13.  For assets you are using, try selling them and leasing them back.
  14.  Minimize money you currently take out of the business for personal compensation.
  15. Schedule any bonus compensation payments for periods of high cash flow.
  16. Lease out any excess space or capacity you currently have.
  17. Don’t fall for the old adage that “sales will cure all ills”… more sales only temporarily mask over inherent operational problems.
  18. You are never too busy selling and growing your business to work on cash flow.

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These are only a few ideas for addressing any cash flow crunches you may have, but they should at least get you into the right mindset for addressing those problems.

Very few businesses work enough on projections and analysis of their business. Simply trying to increase sales, or improve on their better mousetrap, will rarely result in a successful business. Just ask the over 5 million business owners who fail every year.

What do you think? Do you do enough cash flow planning and performance analysis to make your business successful in the long term? Or, are you one of the “I don’t need to plan, I just do it” bunch—which, by the way, comprise a large section of the 5 million annual business failures?

In the next post, I am going to discuss the popular myth that a business owner should only work “on” their business, not “in” their business.

Watch for it and tell me whether you agree with me—or the popular “don’t work ‘in’ your business” gurus of the day… which, in my opinion, is one of the leading contributors to cash flow problems.

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Profitable—And Failing!

Before you finish reading this article, more than 10 businesses will close their doors for good in the U.S. You can read the details of this statistic here.

The reasons for this sorry state of affairs are many and varied, but one of the main reasons is poor cash management. For quite some time I have been hearing the lament “… I’m making a profit, but I can’t pay my bills.” Actually, cash crunches often occur at the same time that business is booming.

Woman with unpaid bills1

The underlying problem is that way too many business owners fail to focus on liquidity. They do not realize, or understand, that cash is the lifeblood of their business. It comes as a shock when they are clobbered with a cash squeeze while their business is profitable.

How does this happen? Well, the answer is really quite simple: most business owners are so busy “selling” and growing their business that they take their eye off the “vital signs” of their business’s health.

What are these vital signs? There are several, but the ones that are usually ignored are found on the Balance Sheet of your business’s financial statements. These vital signs are the ones that bankers and investors usually study in great detail—and are usually the ones that cause the most loan turndowns.

Here is a list of the bare minimum of vital signs that every small business owner should be closely monitoring—and then changing their business practices to improve them:

Current Ratio

This is simply your Current Assets divided by Current Liabilities. This gives an indication of how likely you are to pay your bills on time. A ratio of 1:1 is absolute minimum (otherwise you will likely not be able to pay your bills). A ratio of 2:1 is generally considered as the desired minimum for a successful business.

Quick Ratio

This ratio is calculated by adding cash and receivables together, and dividing them by Current Liabilities. This is often called the “acid test,” because it concentrates on the liquid assets of your business. A desired quick ratio would be at least 1:1. It should be noted that your receivables need to be “clean”—that is, no questionable or uncollectible receivables should be included… otherwise, you are only fooling yourself.

Working Capital

This is simply Current Assets minus Current Liabilities. This is like a revolving fund of money that is needed to carry out your day-to-day business activities. A lack of working capital is usually the bane of most small businesses and is routinely blamed (often falsely) for the large number of business failures.

Net Worth

This is your Total Assets minus Total Liabilities. It gives an idea of what your business is worth, and is most valuable when following the trend—is it trending up or is it trending down?

Leverage Ratio

There are several different leverage ratios, but, for small businesses, this ratio is usually calculated by dividing Total Liabilities by Net Worth. This ratio indicates how much your business relies on debt to operate. It is sometimes called “debt to equity” ratio. Obviously the lower the ratio, the better. Anything above 1 is a red flag that there may be too much debt for the business.

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These are only the bare minimum of vital signs from your Balance Sheet, and each industry has their own vital signs that should be added to these. Then, of course, there is the profitability issue that also needs to be followed on your P&L statement.

So, if your business is having trouble paying its bills—even though it is profitable—it would be a good idea to check out the “vital signs” of your business to determine just how “healthy” your business is… you might be surprised.

Next week I will be posting an article on things you can do to improve your cash flow—so watch for it.

Have any of you ever experienced a cash crunch while running a profitable business?

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